It’s really hard to pinpoint the very worst credit card mistake because there are so many options to consider. Getting a cash advance on your credit card? Yes, that’s a bad one. Using your balance transfer card for new purchases? Don’t do that one, either.
Both of those mistakes might lead you into debt. But there’s one mistake that will surely get you into credit card debt if you don’t do it.
The worst credit card mistake? Failure to track your spending with your credit cards. This will eventually lead to overspending, which then leads to paying compound interest on a credit card balance.
Look, if you have a budget, that’s great. But that alone isn’t enough. A budget is only the first step. To finish the drill, you have to set up a system to track your expenses. If this is starting to freak you out, please relax. You will be shocked by how easy this can be.
[Read: Cash Back Credit Cards.]
What Happens When You Don’t Track Your Spending?
A new survey from WalletHub shows that one in three people are afraid they will max out their credit cards. This mean that around 86 million Americans aren’t confident they can manage their own budgets.
You can’t be the boss of your budget if you have no idea where your money went or how much you even spent. It isn’t enough to budget $400 a month for groceries that you intend to buy with your cash back credit card. You need an “alarm system” that lets you know when you’re close to being over budget.
If you’re using rewards credit cards for purchasing, overbuying leads to credit card debt. It’s important, of course, to track all of your expenses, including the bills that you pay out of a checking account. But when it comes to credit cards, you need to be extra diligent about your purchases and the amounts.
Otherwise, like a thief in the night, credit card debt will sneak up on you and steal your fiscal sanity.
[Read: Credit Cards Without Balance Transfer Fees.]
Simple Ways to Track Your Spending
If you’re still trying to pin down the numbers for your budget, check out the spending tracker tool from the Consumer Financial Protection Bureau. There are suggested categories to use, and you can print it out or fill in the expense amounts online.
Try this for a month, and you’ll get an idea of your budgetary needs. Once you have the amount for each budget item nailed down, you’re ready to automate this and track your expenses.
Now, if you prefer to stick with pen and paper or create your own spreadsheet, that’s fine. But if you’re like me, you need to have a system in place that automatically updates your finances.
There are many choices out there, and here’s a sampling of a few that I like. You can use online budgeting tools or opt for a phone app. Let’s start with a free one, which happens to be the one that I use.
Mint. It’s been around forever, and it’s free. It’s kind of a one-stop shop where you can track spending, monitor investments and more. You can even check your credit score on Mint.
I like the ability to set up budget alarms that let you know when you are about to exceed the limit you set for a specific category. You can also set up a low funds trigger so you’ll know when your accounts are dwindling.
If you prefer to run your financial life from your phone, you also have the option to use the free mobile app.
Mvelopes. This is based on the classic “envelope method,” which involves using actual envelopes for budgeting. In the envelope method, you label each envelope with an expense in your budget. Then you put the allocated money for that expense in the right envelope.
Mvelopes offers a similar approach online. It’s not free, though. There’s a tiered pricing model that starts at $4 a month. I recommend this budgeting tool for someone who needs a simple approach.
You might even try the real envelope method first to see if this kind of system appeals to you. Or if you’re having trouble with the whole concept of budgeting, then the physical envelope method is a good place to get used to the idea.
YNAB. You Need a Budget is a multiplatform budgeting program that also borrows from the envelope method. The first 34 days are free, and then there’s a fee of $6.99 a month. If you want a structured approach and you don’t mind categorizing your expenses yourself, then you should check this out.
It starts with Rule No. 1, which is that every dollar has a job. If you have trouble sticking with a budget even when you try to track your spending, then YNAB just might whip you into good financial shape.
Albert. If you truly can’t summon any excitement about tracking your spending, then give Albert a whirl. This money management tool will analyze your spending and create a budget that’s based on your spending patterns. Right now, the app only supports iPhones, but there’s an Android app in the works.
I recommend this out-of-the box approach for people who understand money management and have a high degree of self-control. It’s more of a hands-off approach, so don’t try this one if you’re still trying to figure out your monthly cash flow.
Get the money basics figured out first, and then if you want to try this, go for it. And if you want human advice, you can get that, too. You decide how much you’ll pay. I told you this one was different!
[Read: Travel Rewards Credit Cards.]
Pick the Solution That’s Right for You
One reason people fail when they try to stay within their spending limits is because they choose a product that’s not a good fit. It doesn’t matter what your neighbor or co-worker uses for money management. I’ll take that even further and say that it doesn’t matter what I use, either.
My goal here is to stress the importance of tracking your spending. I’ve given you some tools to check out, but there are also many more out there. So go forth and do your research and see what the options are. You’ll know you’ve found your budgeting tool soulmate when you see it.
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The Worst Credit Card Mistake You’re Making Right Now originally appeared on usnews.com
